|
Enjoy Business Tax & Cost Savings
by Offering Employee Transit Benefits
Promoting employee job satisfaction and improving environmental quality can be complicated tasks when you also have to keep an eye on the bottom line. Commuter benefits offer a number of ways to save money and increase worker productivity. According to Internal Revenue Code Section 132(f), qualified transportation fringe benefits are excludable from income for purposes of taxation.
Qualified transportation fringe benefits include:
Transit Passes: Transit passes include any vouchers, passes, farecards, tokens, or related items that employees can use to pay for transportation on mass transit or transportation provided by a person in the business of transporting persons for compensation or hire if such transportation has a seating capacity of at least six adults (not including the driver).
Transportation in a Commuter Highway Vehicle: Better known as a vanpool, the tax code defines a "commuter highway vehicle" as a vehicle that has a seating capacity of at least six adults, not including the driver; at least 80 percent of the vehicle's mileage results from trips between work and employees' homes; and during these trips, at least one half of the vehicle's capacity must be filled (not including the driver).
Qualified Parking: The term "qualified parking" is defined as parking near or at the employers' place of business or parking lot located near or at a place where employees commute to work by mass transit, commuter highway vehicles, or carpools (for example, parking at a transit station, park 'n' ride lot or vanpool staging area).
Qualified transportation fringe benefits include cash reimbursement by an employer to an employee for any of the three benefits described above. However, cash reimbursement is allowed for transit/vanpool benefits only in certain circumstances, when a voucher (or similar item which may be exchanged only for a transit pass) is not readily available for distribution. To learn more about qualified transportation fringe benefits and tax savings, contact the Anchorage Share-A-Ride Office, 562-7665.
Tax Savings
Offering qualified transportation benefits can yield significant tax savings. As of January 1, 2005, the Federal Tax Code began allowing employers to offer their employees up to $105 per month in tax-free benefits for transit and vanpool passes. Alternatively, employees can set aside up to $105 per month (pre-tax) for transit or vanpool expenses. Neither the employer nor the employee pay payroll or income taxes on the benefit amount. In addition, several states offer tax credits to employers that offer commuter choice programs. Altogether, tax savings alone typically outweigh the small implementation costs of these programs.
Employers have three options:
The employer covers the full cost of the benefit.
With this option, the employer pays significantly less for an employee's transportation tax-free up to the monthly limit. Because of the savings in payroll and income taxes, the employer pays significantly less than if it had given the employee a comparable increase in salary, and the employer is thus able to offer the employee a no-cost commute.
The employee pays for transportation with pre-tax salary.
With this option, an employee can elect to purchase transit or vanpool passes up to the monthly limit, with money taken out of his or her pre-tax salary. Because of the savings in payroll and income taxes, the employee pays at least one-third less than if the passes were purchased with taxable income. The employer incurs no direct cost and saves taxes that it would otherwise have paid on that portion of the employee's salary.
The employer and the employee share the cost of the benefit.
With this option, the employer pays for at least half the monthly limit of the employee's transportation tax-free. If the employee's commute expenses exceed the amount offered by the employer, he or she can pay for the difference with pre-tax income. This program incurs a low cost to the company and saves money in taxes for both the employer and the employee.
Other Cost Savings
Reduced employee recruiting and retention costs. Helping employees save money can raise their opinion of the employer, which reduces turnover and increases productivity. Employers then spend less time and money recruiting and training new employees.
Reduced facility costs. Telecommuters need less space in the office, which means that building rent costs and furniture/equipment are reduced.
Reduced parking expenses. Carpool, vanpool, and transit users require less parking space, saving the company money on rent, construction, and maintenance.
For more detailed information about the tax treatment of employer-provided commuting benefits, review the Federal Tax Benefit Brief.
|
